How a tiny miner's bet went nuclear

Three years ago, Neal Froneman was heading up what he admits was a marginal South African gold company, with no revenue and few prospects in the bullion business.

Under Mr. Froneman's guidance, that same company, now based in Toronto and called sxr Uranium One Inc., is on the verge of becoming the world's second-largest publicly traded uranium producer, with a market value of $5-billion (U.S.).

If Uranium One's $3.1-billion friendly, all-stock takeover offer for larger rival UrAsia Energy Ltd. succeeds, Mr. Froneman believes his company will soon be poised to challenge industry giant Cameco Corp. -- both for investment dollars, and for uranium production in a few years when the combined company's five mines are fully operating.

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"I don't think we are extraordinary. I just think a lot of the people in this business are conservative and we have been able to capitalize on their conservatism," Mr. Froneman said in an interview.

"We believe in our product. We believe that uranium is an important commodity for the future."

However, with uranium prices at all-time highs on supply concerns and a lack of major new projects set to come on line, the uranium industry may be ready to shrug off its conservative behaviour.

UrAsia, operates a mine in Kazakhstan.

It has two other projects in development, and Mr. Froneman acknowledged the proposed deal might attract a competing offer from Cameco or diversified mining giants BHP Billiton Ltd. or Rio Tinto PLC, which both have uranium interests.

"I think there's a very real chance of it happening. Clearly we're well prepared for that," he said, adding, "it's got to be somebody bigger than us, I would think. We've probably pushed the limits in terms of a smaller company taking over a larger company. It could well be one of the majors that steps up here."

UrAsia chairman Ian Telfer said his Vancouver-based company had received expressions of interest from several parties before it was approached by Uranium One and entered into exclusive negotiations in September.

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"I don't think we had to do a deal. We were doing extremely well, our assets had performed well and the price of the commodity had only gone up since we got involved," said Mr. Telfer, who has agreed to become chairman of the new company, Uranium One Inc.

Both Uranium One and UrAsia have benefited from soaring prices for the radioactive metal used to fuel nuclear reactors. Spot uranium prices doubled last year and hit $75 a pound last week. Supply concerns have been exacerbated by a flood at Cameco's Cigar Lake Mine in northern Saskatchewan, which was to have supplied up to 10 per cent of the world's supply by 2010.

The combined companies will produce roughly 3 million pounds of uranium this year, seven million pounds in 2008 and have the potential for 19 million pounds from five operations by 2012. That is close to Cameco's current annual production level of roughly 21 million pounds.

UrAsia made its debut on the TSX Venture Exchange in November, 2005, in a $504-million (Canadian) initial public offering, the brainchild of mining financier Frank Giustra.

Mr. Giustra, the current head of Endeavour Financial and former chairman of Yorkton Securities, first raised about $60-million in a UrAsia private placement and used the proceeds to purchase a 30-per-cent stake in the Kharassan project from the Kazakhstan government's state-owned mining company Kazatomprom.

The proceeds from the IPO were used to buy a 70-per-cent interests in the Akdala mine and the South Inkai project for $345-million (U.S.).

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Mr. Giustra owns 5.6 million UrAsia shares worth $36.2-million (Canadian), based on yesterday's closing price of $6.48, a gain of 25 cents or 4 per cent. Both Mr. Giustra and Mr. Telfer were granted 850,000 UrAsia stock options in November, 2006, with an exercise price of $3.74 per share. Mr. Telfer also owns 2.2 million shares of UrAsia worth $14.2-million based on yesterday's closing price.

The duo also teamed up on the acquisition of Wheaton River Minerals Ltd. in 2001, the company that eventually became Goldcorp Inc. Mr. Telfer stepped down as CEO of Goldcorp last year after the company bought Glamis Gold Ltd. He is still chairman of Goldcorp.

"What we need as a company going forward is board members who see the big picture. Ian Telfer must see one of the bigger pictures in this industry and was a very natural choice to chair the new company," Mr. Froneman said. Mr. Giustra has agreed to step down as a board member at UrAsia because Endeavour is an adviser on the deal.

The uranium, picture

The bid by sxr Uranium One to buy Vancouver's UrAsia Energy comes amid soaring prices for uranium, used to fuel nuclear reactors. Spot prices have doubled over the past year over supply concerns. The price of uranium recently hit $ 75 (U. S.) a pound.

Australia: 28%

South Africa: 7%

Niger: 6%

Namibia: 6%

Brazil: 6%

U. S.: 3%

Canada: 12%

Mongolia: 2%

Kazakhstan: 16%

Ukraine: 2%

Russia: 5%

Uzbekistan: 2%

Deal highlights

- Merger is valued at $3.1-billion (U.S.)

- UrAsia shareholders get 0.45 of a sxr share for each UrAsia share

- Combined market capitalization will be about $5.1-billion (U.S.)

- New company will have uranium projects in South Africa, Kazakhstan, Australia and Canada